Financial Markets: Pinocchio’s Enchanted Island

The control of the commercials and the COMEX manipulators have is very depressing for the gold market investor. As soon as gold and the miners are about to get on another bullish leg, that the moving averages are positively aligned and re-crossing the 200-day MA, that the traders are standing by to get back in the market and are following the buying signals, BANG ! A new flash crash ! And, as usual, it is explained by vague and far-fetched reasons. The last example we have is what happened last Friday: Because of slightly better numbers on jobs creation in the United States, gold has been massively attacked and lost $40 in a single day ! Ten days like that would bring gold down to $834 ! This is gigantic ! One doesn’t have to look very far to realise that the manipulators are still running the show and are systematically keeping gold from resuming a bull market. They have failed to keep it under $1,200 for any length of time in 2014, but they are very active in keeping it under $1,300, because this would trigger technical buying orders.

The Fed will probably try to hike interest rates in June by 0.25%... so? The dollar is already too expensive and will hurt exports, the mountain of private and public debt in the U.S. will not be able to support a rate hike, and neither will the stock market, already in an historic bubble ! An interest rate hike in the U.S. would most likely totally extinguish what frail economic recovery there is. The Fed is about to make the same mistake Jean-Claude Trichet made for Europe: By over-estimating the capacity for economic recovery and by wanting to retain the weapon of rates reduction when recession hits, the central bank is going to choke an eventual recovery. The reality is that central banks are caught in a snare and the only weapon they have left is the destruction of their own paper money. One after the other, they go for competitive devaluation of their currency. After the Fed and the Bank of Japan, it’s now the ECB’s turn. Who will be next?

As long as this market is manipulated, no technical analysis will hit the target ! We have been living in a new era of “fantasy finance” since the Fed officially intervened massively, in 2009, and since the non-official control of the gold price, in 2013. Investors are now thinking that everything is possible: stocks rising into infinity, oil being given to us by producers and refiners almost for free (it sells cheaper than mineral water), countries that can borrow at historically ri-di-cu-lous rates, and, no later than just a few days ago, a bank in Denmark that pays people to contract a real estate loan (negative rates) ! The financial world, with its lies and immoral management, has been transformed into a Pinocchio’s Enchanted Island... for adults ! How long will these aberrations last? As long as central banks do not come back to a monetary system based on gold and as long as they massively manipulate the markets trying to keep the current monetary system from failing. Officially, they do it to control interest rates and money printing but, un-officially and with the complicity of business banks, to control strategic assets such as gold and, probably, stocks, to maintain the “wealth effect” and try to boost middle-class spending in the U.S.

Of course, there will be a price to pay ! Children are turning into donkeys on Pleasure Island and they are paying dearly for their gullibility ! Today the market punishes the conservative investor and favours speculators and idiots who see central banks as the Hand of God in the financial markets. We are witnessing a full deterioration of the markets. In my view, the results of these manipulations (the most scandalous result being the richest getting richer, not by global wealth growth, but on the backs of the poorest) are much more diabolical. Let’s open our eyes: At this point, people are kneeling like little kids before the Fed, the ECB, the BoJ and all those imperilled institutions, so that they continue to feed the fantastic world of post-2008 finance with more liquidity and easing ! The gullibility of people today is such that they have completely exited from assets that could protect their wealth when the bill comes due for all this monetary debauchery. Suddenly, in just a few days or weeks, investors will turn into donkeys, and those who are branded as donkeys today (investors in safe haven assets such as gold) will be rewarded for their patience and their wisdom.

Unfortunately, I have no idea when this return to Earth will occur. In this new era of fantasy finance, I think that central bankers have gone into the final phase of paper money destruction, pure and simple. There will be no reparation possible without calling in the ultimate debt extinguisher, i.e. gold. This is the reason why central banks continue to accumulate gold or are asking for repatriation. At this stage, the more they fight recession by printing money, the more the certainty grows of an accident worse than in 1929 happening, that could lead to an historical debacle that would mark the remainder of this century. The only advice I can give today is to remain patient and to resist the chants of the media Sirens trying all they can to draw us to Pinocchio’s Enchanted Island !